The following is a transcript of an interview between ABC Radio Australia and Dr. Rajan Menon. To listen to the discussion, click on the paperclip or visit http://www.abc.net.au/ra/connectasia/.

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The Indian govenment has condemned the Mumbai train bombings as a 'shocking and cowardly' act of terrorism. Some analysts point to the handiwork of al-Qaeda and their supporters, while others say it could be the work of south Asian Muslim terror groups.

MENON: The wider context of this is the dispute over Kashmir, as you know, India's only Muslim-majority state, a state whose ownership is contested between India and Pakistan, the state is in fact divided with India having the larger part and the Pakistanis have maintained that it's rightfully theirs. Various groups, radical groups, secessionist groups have operated against Indian security forces and have used terrorism, bombings and so on. Not all Kashmiri groups by any means are that way. The Indians have long charged that these groups are linked to the Pakistani authorities. There are two in particular, Lashkar-e-Toiba and Jaish-e-Mohammad, and the Indian government I think will keep a close watch on these two groups to see if they're implicated in these bombings.

LAM: Indeed these two groups, Lashkar-e-Taiba and the Jaish-e-Mohammad, they've been blamed for previous attacks in India?

MENON: That's right, in fact, there have been two prior attacks in Bombay in 1993 when I think about a dozen, perhaps more bombs went off killing 250 people. Now in August of 2003 they had a couple of car bombings that claimed 53 people dead. And now you have this, and of course Bombay is a large city, 17-million, it's India's financial capital. So there is a lot of benefit if you're a terrorist group in carrying out an attack like this. It tells people that even in a larger city you're not safe, and it rattles financial markets.

LAM: And yet some people say that these attacks bore the hallmark of al-Qaeda or similar global Jihadists?

MENON: Well I certainly, and I don't think anybody at this point knows who this group is. But there's no question that this was a professionally planned operation by a terrorist group. A string of bombs that were detonated in six to seven commuter stations at rush hour period, more or less simultaneously... that's not the handiwork of an amateur group. These are professionals who specialise in these kinds of activities, however heinous they may be.

LAM: And aiming at the economy of a country, Mumbai being the financial hub of India, that we can understand. But why do you think the attackers have also picked soft so-called symbolic targets, such as railway stations and railway networks?

MENON: Well I think by picking soft targets first of all, compared to hard targets and military installations and presidential buildings, although there was an attack on the Indian parliament as you know in 2001, soft targets are simply easier to get at. Soft targets contain many larger masses of people at any given point, railway stations for example. And soft targets really show or are intended to show to the public that the government cannot carry out a very basic function, that of security. So in that sense, although 9/11 was a much bigger attack of course, there is a parallel - soft targets are intended to create massive casualties. And the financial centre angle is also important because the Indian economy's growing rapidly. Recently, they've been in recent weeks and months some concern, some jitters on the part of investors about moving money into India. And this will certainly not be helpful.

LAM: India's Home Minister Shivraj Patil said that the authorities, the Indian authorities had some information of an imminent attack but that they didn't know the place nor the time. Might this be read as a failure of Indian intelligence?

MENON: Well, it is a failure in the sense that they didn't prevent it, but you have to remember that this is a country of close to a billion people with larger urban centres; it's an open democratic country. And as terrorist attacks worldwide have shown in recent years, it is very, very difficult to stop terrorism dead. You're not dealing with a conventional military that is identified, that has weaponry that masses forces on your borders; you are dealing with people who can blend into the population very easily. So it is an intelligence failure but it's very rough sledding to A - get reliable intelligence, and B - act before the terrorist attack. In that sense, it's a situation where terrorists have to succeed only one time, whereas the government has to be right 100 per cent of the time. So there's a symmetry there that works in the favour of terrorist groups.

IN RECENT YEARS, railroad companies aggressively hedged their fuel costs through the use of financial derivatives, saving millions of dollars.

The strategy has left the station. Most railroads today are instead passing higher fuel costs on to their commercial customers in the form of surcharges.

It is a workaround not without risks: The hedging techniques the railroads had employed not only protected them from a jump in the price of oil, but also did the same for the companies that transport their wares on the rail lines. And surcharges can't completely protect the railroads against quick, sharp swings in oil prices.

"Hedging is not a long-term strategy" for containing fuel cost, says Robin Chapman, a spokesman for Norfolk Southern Corp., which put its last fuel hedges in place in May 2004. "When we thought we had reached a plateau in [oil and fuel] prices, we let the program phase out."

Nevertheless, Norfolk shaved $148 million from its diesel bill in 2005 thanks to hedges, $140 million in 2004 and $59 million in 2003. When the Norfolk, Va., company stopped investing in new hedges, it anticipated the price of oil would ease again, Donald Seale, executive vice president, testified last month before federal regulators.

Instead, oil hovers around $75 a barrel, and Norfolk Southern and other railroads have implemented fuel surcharges. For some railroads the charges amount to as much as 16% of their base freight rates, although Norfolk Southern's surcharge is now only about 2% of the freight rate.

One factor in the railroad operators' favor: Fuel surcharges are even higher on many air and truck shipping routes, and surcharges have cropped up in other industries, too.

United Parcel Service Inc. and FedEx Corp. recently boosted package fees to cover rising fuel costs. Cruise operators are raising prices and changing itineraries to reduce fuel consumption. Some airlines last month added surcharges on international flights. Even pizza parlors and florists are tacking on surcharges for home delivery.

But unlike the corner florist, big business can hold down the expense by hedging the price of fuel. Hedges convert a market risk into a more easily managed financial risk that enables a business to lock in a price today for goods delivered in the future.

A common way to hedge the price of diesel is through purchase of futures contracts on heating oil. For example, suppose a company buys an oil futures contract for $1.25 a gallon for delivery in six months. Suppose as well that the price climbs to $1.50 a gallon in those six months. The company must still pay the higher price, but the value of the futures contract has climbed to $1.50 as well. The company can sell the contract for a 25 cent per gallon profit to apply toward the purchase price of the commodity. In effect, the company locked in a price of $1.25.

Companies also hedge using swaps and options contracts. Those transactions operate differently and may carry more risk, but the result is similar. They enable the holder to lock in a current price for future delivery.

Hedging has been around since the 19th century and is a mainstay of commodity markets from corn and pork bellies to jet fuel. The practice carries some cost, which is sometimes a reason why companies reduce hedging, says James Largay, professor of accounting at Lehigh University in Bethlehem, Pa. But in the case of the railroads, "it's not likely it became a cost that they couldn't afford," he says. More likely, it is a cost management decided it could pass along to customers, he says.

Many railroads adjust surcharges monthly. But a surcharge still leaves a company open to price spikes before surcharges can be adjusted, a variable that hedges could protect against, says Prof. Largay, who says the companies are risking shareholder money by opting not to hedge.

Even railroads that used hedging successfully are turning away from it.

CSX Corp. of Jacksonville, Fla., entered 2005 with about 48% of its anticipated fuel demand, or about 360 million gallons of diesel, hedged at 81 cents a gallon, according to regulatory filings. At that time, diesel was going for about $1.95 a gallon.

But in the first quarter of 2006, hedges covered only 25% of CSX's fuel needs, falling to 11% in the second quarter and 1% in the third, according to filings.

In 2004, one year after implementing its hedge strategy, the company shifted its focus and "fuel surcharges became the primary vehicle through which CSX manages fuel price volatility," said a securities filing at the time.